Primus to Start Selling Credit Derivatives in May

New York, March 19 (Bloomberg) — Primus Guaranty, Ltd., formed by former bankers at Salomon Smith Barney, Bank of America Corp. and Merrill Lynch & Co., plans to sell credit-default swaps starting in May, Chief Financial Officer Joseph Bauman said.

The company will sell the instruments through its Primus Financial Products unit and will be the first top-rated company selling only credit-default swaps, which operate like insurance against missed payments, transferring the risk of holding corporate bonds.

"There's interest by the dealer community and others," said Bauman, who previously worked as head of international financial management and derivatives sales at Bank of America, and as chairman of the International Swaps and Derivatives Association. Credit derivatives such as default swaps and credit-linked notes are becoming more popular, after record losses from bond defaults last year, as investors seek to protect themselves. The global market is now worth $1.6 trillion, the International Monetary Fund estimates.

Primus is rated "AAA" by Standard & Poor's and "Aaa" by Moody's Investors Service. The company plans to sell default swaps on about 1,200 investment-grade corporate and government bonds. Bauman said Primus will concentrate on default swaps that trade less than those on the largest companies. It will control risk by only trading investment-grade swaps and on enough companies to prevent a concentration of risk, he said. "We want to move beyond actively traded names, and focus on taking on risk that the dealer community may not have client outlets" for, he said.

'Learned Some Lessons'

Primus Chief Executive Officer Thomas Jasper was formerly Salomon's treasurer, and also an ISDA chairman. The other managers are Chief Risk Officer Charles Truett, previously credit officer at Bank of America, and Chief Technology Officer Alec Rainsby, formerly managing director of debt-markets technology at Merrill.

The venture comes after the same founders tried in June 2000 to start ePrimus to trade credit-risk products online.

"It wasn't what the market wanted at the time," Bauman said. "We learned some lessons from that approach."

XL Capital Ltd., Bermuda's biggest insurer; Radian Group Inc.; the California Public Employees' Retirement System; and Aegon USA last week invested a total of $155 million in Primus Guaranty. Radian's reinsurance arm will insure Primus Financial Products for $115 million.

Primus plans to increase its staff from nine to 20 within six months, Bauman said.

© 2003 Bloomberg L.P. Reprinted with permission.
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